The Good Life

Gulf Islamic bond sellers shun dollar

Two Gulf borrowers are planning to sell ringgit Islamic bonds in Malaysia, in the latest move that highlights the rising cost of borrowing in US dollars, the previous Islamic bond denomination of choice.

A global credit crunch has made dollar borrowing more expensive, and bets that Gulf states could allow their dollar-pegged currencies to appreciate to dampen inflation has seen dollar assets fall from favour.

National Bank of Abu Dhabi (NBAD) plans to sell up to $925.6 million in ringgit-denominated bonds, which could include an Islamic tranche, the lender said.

The Saudi-based Islamic Development Bank said it plans to sell $1 billion of ringgit-denominated Islamic bonds this year.

“We see a lot of investors saying they do not have US dollars available…The cost of lending dollars has gone up tremendously,” a banker at one of Asia s largest banks said.

“It’s forcing borrowers to look at any market with deep enough local currencies to take their instrument. This is the reason why you see all the dirham sukuk,” the banker said.

Almost all Islamic bonds, or sukuk, issued in recent weeks have been priced in UAE dirhams and Saudi riyals.

Bankers say Gulf firms are trying to diversify their investor base, and that more Islamic banks are looking to raise cash in Malaysia’s Islamic bond market, which is more liquid and has a better regulatory framework than local markets.

“More Gulf firms are looking at Malaysia for Islamic bond issuance. There is a better regulatory framework and the market is more established,” Shamsun Hussein, head of debt markets at Malaysia s CIMB Islamic, said.

The Islamic Development Bank said its ringgit bonds were likely to have a tenor of five years and would finance infrastructure and industrial projects in Malaysia.

NBAD’s sale was to finance expansion, and is part of the bank’s $5bn Euro Medium Term Note programme, launched in 2006, through which $2bn of bonds have already been sold, investor relations officer Abhishek Kumat said.